Option Investor
Newsletter

Daily Newsletter, Monday, 3/2/2015

Table of Contents

  1. Market Wrap
  2. New Plays
  3. In Play Updates and Reviews

Market Wrap

NASDAQ 5000

by Thomas Hughes

Click here to email Thomas Hughes
The market reached another milestone, the NASDAQ Composite crossed 5,000.

Introduction

The bulls rallied as soon as the opening bell sounded and carried the NASDAQ Composite across the 5,000 mark for the first time in 15 years. While not the all-time high, today is a new 15 year high for the index and one of only 8 days in which it has even traded above this level. The other indices also rallied and reached new highs of their own. Today's move was foreshadowed and aided by central bank activity in China. The Peoples Bank of China lowered their key interest rate in an effort to stimulate growth and stimulated equity buying as well.

Market Statistics

The indices were indicated up from the earliest part of the pre-market session. Futures trading remained positive but near flat up and into the opening bell. There was quite a bit of news, data and such before the open of equities trading but none of it was market moving on an individual basis.

The market moved higher as soon as the bell sounded. The early move carried the indices to a peak by 10:30AM, when the NASDAQ first crossed 5,000. Afterward the index, and the market, pulled back from the high to regroup, and then tested the high again about 2 hours later. This second attempt was also repelled but Late afternoon trading and a third attempt at a new all time high on the NASDAQ sent the entire market higher.

Economic Calendar

The Economy

Personal income and spending figures were released at 8:30AM. The headline increase of personal income of 0.3% was roughly in line with expectations and holding steady from the previous month's unrevised figure. This is a good sign for labor markets; wages are on the rise, if slowly, and not so quickly as to cause concern. On a down note spending declined by -0.2% but at the core level, ex gasoline, it rose by 0.1%. Looking back at 2014, incomes rose an average 4% for the year. ISM manufacturing data was released at 10AM. The ISM PMI came in at 52.9%, a decline of -0.6% from the previous month and in-line with expectations. This is the lowest level since January of last year and the fourth month of decline since hitting its historic high last fall. Within the report new orders, production and employment all declined but remain expansionary above 50. Inventories are also above 50 but on the rise. On a sector by sector basis 12 of the 18 tracked sectors are showing growth. The price index remains very low at 35, indicating continued decline of input prices in the sector.


Construction spending fell in January by -1.1%. This is counter to expectations of a gain of 0.3% and well below the 0.4% gain in December. The drop was led by a decline in residential building, compounded by declines in business and government building. Despite the decline spending is 1.8% higher than this same month last year.

Moody's Survey of Business Confidence remains near record highs. The index fell by a tenth this week to 40.0, the fourth week of readings at or above 40 and just below the 12 year high. The statement released by Moody's and Mark Zandi is also positive. He says that “U.S. businesses remain as optimistic as they have been in the more than 12 years of the business confidence survey. They are upbeat about sales, hiring and investment. . . An astounding more than half of the responses to the business survey are positive, while less than one-tenth are negative.”


This is a huge week for data. There are over 2 dozen reports this week including housing, manufacturing and labor. Tuesday is auto and truck sales. Wednesday is the Fed's Beige Book for March, ISM Services and ADP employment data, Thursday is jobless claims, Challenger Job Cuts, Unit Labor Costs and Factory Orders. Friday wraps it up with the all important Non Farms Payroll data. Keeping it all in perspective will be important. Some of the data is rear looking but not much, only the unit labor costs/productivity numbers are from the fourth quarter. The rest is for either January or February. I will be looking for improvements, or at least stability, from the January to February period and positive forward outlook.

The Oil Index

Oil prices were a little crazy today and may be indicating a disassociation from the fundamentals. WTI and Brent had both been up in early trading, during the Asian and early part of the European sessions, until news that Libyan production was coming back on-line. At that time both benchmarks plummeted with Brent falling more than 4.5%. WTI however, did not fall quite that much and even rebounded from its low to trade higher by 3.5%. However, by the end of the day price fell back to break even and settled near $49.50. Oil prices remain volatile but relatively stable trading around the $50 level.

The Oil Index was not so undecided in its direction today. The index fell over -1.75% and broke the short term 30 day moving average. It also pierced support and the lower boundary of the February trading range but did not close below it. The index is moving lower, from the top of a longer term trading range, with bearish indicators and could be headed lower. Near term support around 1,350 is likely to be tested with a break below looking very possible. If a break does occur the index may move down to test support at the bottom of the three month trading range near 1,250.


The Gold Index

Gold prices fell about $6 today, after trading up by a similar amount. The news from China spurred some buying in early trading but soon speculation over the Fed and interest rates curbed appetite. Price for the metal remains above $1,200 but looks as if it may retest support at that level at least. The data is going to have a big effect on gold prices this week so more volatility should be expected. Positive data should, I think, support gold prices as it will lead to the Fed raising rates sooner rather than later.

The GDX gold miner ETF fell as well, losing close to -3%. The ETF fell below the short term moving average but is still above my support line at $20.50. The indicators are bearish but in line with support at this level so I am expecting it to hold for now. This support level is coincident with $1,200 on the gold charts and may be tied to gold holding that level. A break below $20.50, $1200 for gold, could take the index down to the long term low near $17.50. With all the data on tap I think we may know by the end of the week if it will hold or not.


In The News, Story Stocks and Earnings

Most of the S&P 500 has already reported but that does not mean there are no reports left, S&P or otherwise. There are still 15 S&P companies left to report this round, and close to 500 reports from small and mid-cap names scheduled for this week. According to Factset 76% of the S&P 500 companies have reported earnings above the mean average and 59% have reported revenue above the mean estimate. This is above the 1.7% estimated at the beginning of the quarter and 0.2% above last weeks blended average. The average earnings are rising due to earnings beats in multiple sectors, primarily in energy. Despite the energy sector beating on earnings it remains the leader in terms of overall earnings declines. Looking forward projections for earnings decline in the first and second quarter of 2015 are beginning to level off. The forward P/E has flattened over the last 2-3 weeks and could begin to move higher.


Lots of business news in the headlines as well today, and a noticeable lack of geopolitics. Mergers & acquisitions was one topic of note. Hewlett-Packard is buying Aruba Neworks in a move that would make them a leader in mobile enterprise solutions. The deal is worth nearly $3 billion and did little to move either stock. In other merger news NXP Semi and Freescale Semi announced a union that would create a company worth over $30 billion. NXP will be paying about $36.50 per share for shares of Freescale, roughly equal to last weeks closing price. Shares of NXP Semi (NXPI) jumped more than 17% on the news.


Costco announced a deal with Visa to provide card services to its customers. The deal is long term in nature and set to begin in April of next year. Costco did not move on the news but shares of Visa jumped 2.5% to hit a new high. Mastercard also announced a new deal, that it was going to be accepted in Cuba. Shares of its stock also climbed, gaining a little over 2%.


Today's biggest loser was Lumber Liquidators. Apparently, although I didn't see it, there was a scathing report on 60 Minutes showing how the company was using hazardous chemicals in its flooring material, counter to California laws and labeling on the packages. Shares of the stock fell more than 25% to a new 12 month low this morning. The company of course says it had no idea and that it was challenging the results of the tests performed on the show.


The Indices

Despite the numerous data points scheduled for this week and the prospect of earnings decline in the S&P 500 the market rallied. The bulls stepped right out of the gate and moved steadily higher throughout the day. Today's action was led of course by the NASDAQ, which crossed and closed above 5,000 with a move of 0.9%. The tech heavy index, but no longer tech dominant, crossed 5,000 and set a new high as well. The index is moving higher in line with the long term trend with bullish indicators but there are reasons to be cautious. For one, the indicators continue to show weakness as the index moves higher. Momentum is not picking up, it is winding down, and stochastic is still showing the bearish crossover. Another reason to be cautious is the wave of data scheduled to be released this week.


The next biggest gainer of the day was the Dow Jones Transportation Average. The transports gained 0.87% in today's session and is the only one of the major indices to not make a new high. The index moved up from the short term moving average, confirming near term support, but is still short of the current all time high. The indicators are bullish but very, very weak and leading me to think that the February rally could be coming to an end. Stochastic is about to fall out of the upper signal zone and MACD is about to make a zero line cross over, hints of reversal but not confirmed signs. Resistance is the current all time high near 9,250 and is likely to be tested but a break out is yet to be determined.


The Dow Jones Industrial Average is third in today's line-up with a gain of 0.86%. The blue chips made a nice white candle that extended the February rally and set a new all time high. The move is in-line with the underlying trend and supported by the indicators but is at risk of correction. The indicators are bullish but persist in showing weakness. The MACD is winding down toward zero and stochastic is still showing the bearish crossover that formed with last weeks test of support. The index could continue to drift higher but without a stronger showing of the indicators I remain cautious.


The S&P 500 set a new high as well, barely. The broad market moved up to set a new intra-day high but could not reach to a new all time high. The indicators are bullish, in line with the trend and the move to new highs, but remain weak. However, unlike the other indices, MACD and stochastic are both showing early signs of rolling over and could lead to a new wave of buying. If this move continues and the indicators do roll over into a stronger signal then a more pronounced rally cold follow with targets near 2,200.


The bulls are eager for new highs and couldn't quite wait for the data to be released in order to reach them. This may be a good sign, or it may be setting the market up for a fall. If the data is good, or good enough to support trends and lift expectations for future earnings then moving to new highs is OK. If the data spooks the market or give it reason to think earnings are going to suffer then the move may be bad. The trouble for us today is making a decision to trade or not based on that move. The long term trends are up and so far there has been little sign of it ending. There is some sign of a winter slump but nothing like last years January slow down so I am not expecting anything overly shocking. I remain bullish and eagerly awaiting the data and whatever indication of direction the market will give.

Until then, remember the trend!

Thomas Hughes


New Plays

Consumer Goods

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Johnson Controls Inc. - JCI - close: 51.90 change: +1.09

Stop Loss: 49.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 2, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.5 million
New Positions: Yes, see below

Company Description

Why We Like It:
JCI is in the consumer goods business. A large chunk of their sales is in the auto parts industry. Right now auto-part stocks have been showing relative strength.

According to the company, "Johnson Controls is a global diversified technology and industrial leader serving customers in more than 150 countries. Our 170,000 employees create quality products, services and solutions to optimize energy and operational efficiencies of buildings; lead-acid automotive batteries and advanced batteries for hybrid and electric vehicles; and interior systems for automobiles."

The earnings picture last year was not that hot. Back in April 2014 JCI actually lowered guidance for their third quarter and fiscal 2014. The next two quarters were pretty bland. However, the earnings picture began to improve when JCI reported results last October. Their 2014 Q4 numbers beat analysts' estimates on the bottom line.

JCI held their annual investor day on December 2nd. Management said, "We believe initiatives to improve the profitability of our businesses continue to gain momentum. Our 2014 results provide a foundation that we believe will position us to deliver record sales and earnings in 2015." JCI expects steady growth and minor margin improvement in the auto seating business. Their power solutions business should grow faster (about +5.5%) and margins should improve about 50 basis points to 18.5%.

JCI's next earnings report was their first quarter of 2015. Their announcement on January 22nd showed earnings grew +20% to $0.79 a share, beating expectations. Revenues were up +5% but when you account for currency adjustments they were up less than 1% but still above analysts' estimates. It's the first time they beat the revenue estimate in a while. Their Q1 results were driving by a strong performance in China where sales surged +15%.

JCI's Chairman and CEO Alex Molinaroli said, "Profitability improved significantly in the quarter, as we benefitted from higher volumes and our continuing focus on execution improvements. The results in the quarter are better than the expectations we provided at our analyst day in December.

The company also announced a joint venture agreement. According to the press release JCI and "Hitachi, Ltd. and Hitachi Appliances, Inc. signed a definitive agreement on January 21, 2015 to form a previously announced global joint venture that will bring customers world-class variable refrigerant flow (VRF) technology, as well as room air conditioners and absorption chillers to meet increasing demands for energy efficient air conditioning options. The Johnson Controls-Hitachi joint venture is expected to have 2016 sales of approximately $3.0 billion. The formation of the joint venture is expected to close in the fourth quarter of fiscal 2015, pending regulatory approvals." JCI will own 60% of the business.

Technically shares of JCI have been in rally mode following their earnings report. Investors have been buying the dips and now JCI is challenging major resistance in the $52.00 area. The point & figure chart is bullish and forecasting a long-term target at $67.00. On the weekly chart (see below) JCI has formed an inverse head-and-shoulders pattern, which is bullish. Tonight we are suggesting a trigger to launch bullish positions at $52.15.

Trigger @ $52.15

- Suggested Positions -

Buy JCI stock @ (trigger)

- (or for more adventurous traders, try this option) -

Buy the Jul $55 CALL (JCI150717C55) current ask $1.25

Option Format: symbol-year-month-day-call-strike

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Buying The Dip

by James Brown

Click here to email James Brown

Editor's Note:
Stocks quickly recovered from last week's profit taking. Traders jumped in on Monday morning to buy the dip. All the major indices posted gains and the NASDAQ closed above 5,000 for the first time in 15 years.

ADT has been removed.


Current Portfolio:


BULLISH Play Updates

Abbott Laboratories - ABT - close: 47.22 change: -0.15

Stop Loss: 46.85
Target(s): To Be Determined
Current Option Gain/Loss: +1.2%
Entry on February 19 at $46.65
Listed on February 17, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 5.34 million
New Positions: see below

Comments:
03/02/15: Hmm.... ABT did not participate in the market's widespread rally today. Instead shares faded lower toward short-term technical support at the 10-dma. We're turning more defensive and raising the stop loss up to $46.85. I would hesitate to launch new positions at this time.

Earlier Comments: February 17, 2015:
ABT is in the healthcare sector. With a history that starts back in the late 1880s this is one of the oldest publicly traded companies in the U.S. The company has grown to a global giant with sales of more than $20 billion a year. About 70% of sales are outside the United States.

According to the company, "Abbott is a global healthcare company devoted to improving life through the development of products and technologies that span the breadth of healthcare. With a portfolio of leading, science-based offerings in diagnostics, medical devices, nutritionals and branded generic pharmaceuticals, Abbott serves people in more than 150 countries and employs approximately 77,000 people."

The most recent earnings report was January 29th. ABT's earnings rose +22% from a year ago to $0.71 a share. That beat estimates of $0.68. Revenues were up +5.6% to $5.36 billion. Unfortunately that did miss estimates of $5.43 billion. The company did raise its annual dividend from $0.88 to $0.96 and revenues were up +10% for the whole year (2014). ABT also said its adjust net margins grew over 200 basis points for the full year.

Here's the interest part, ABT management issued 2015 guidance of $2.10-2.20 per share. That is growth of about +6% to +11% while facing significant currency challenges due to the strong dollar (near 11-year highs). Wall Street was estimating $2.25 per shares for 2015. The stock rallied in spite of this lowered outlook.

The following day a Bank of America/Merrill Lynch analyst upgraded the stock from "neutral" to a "buy" and raised their price target because they believe that ABT will see strong revenue growth and margin improvement in 2015.

Shares of ABT have definitely been showing relative strength with the stock up four weeks I a row. These are all-time highs for the stock and ABT is in the process of breaking out past its December 2014 highs. Tonight we are suggesting a trigger to open bullish positions at $46.65.

- Suggested Positions -

Long ABT stock @ $46.65

- (or for more adventurous traders, try this option) -

Long AUG $50 CALL (ABT150821C50) entry $0.91

03/02/15 new stop @ 46.85
02/19/15 triggered @ $46.65
Option Format: symbol-year-month-day-call-strike


Anthera Pharmaceuticals - ANTH - close: 4.93 change: -0.12

Stop Loss: 4.58
Target(s): To Be Determined
Current Option Gain/Loss: -2.4%
Entry on February 26 at $5.05
Listed on February 25, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 715 thousand
New Positions: see below

Comments:
03/02/15: ANTH encountered some profit taking today. The stock dipped to short-term technical support at its 10-dma before bouncing. Shares were down -5.9% at their worst levels of the session but pared their loss to -2.3%. I am not suggesting new positions at this time.

Earlier Comments: February 25, 2015:
Biotech stocks were outperformers last year and they continue to outperform the broader market in 2015. One biotech stock that did not participate in last year's rally was ANTH. The stock was actually on the verge of being delisted from the NASDAQ. That changed with the company' recent press release.

According to the company, "Anthera Pharmaceuticals is a biopharmaceutical company focused on developing and commercializing products to treat serious and life-threatening diseases, including lupus, lupus with glomerulonephritis, IgA nephropathy, and exocrine pancreatic insufficiency due to cystic fibrosis."

The press release that changed the stock's direction came out on February 10th. ANTH announced "successful completion of an interim analysis of its Phase 3 trial (CHABLIS-SC1) of blisibimod in patients with Systemic Lupus Erythematosus and that the study should continue to completion as planned. An independent statistician conducted the interim futility analysis for the CHABLIS-SC1 study, evaluating the SRI-6 response at the 24 week time point. Enrollment in the trial is projected to conclude in mid-2015."

What is blisibimod? In the press release the company states, "Anthera is developing blisibimod, a selective inhibitor of B-cell activating factor (BAFF), to explore its clinical utility in various autoimmune diseases including systemic lupus erythematosus (SLE) and IgA nephropathy. Blisibimod is a novel FC-fusion protein, or peptibody, and is distinct from an antibody. BAFF is a tumor necrosis family member and is critical to the development, maintenance and survival of B-cells. Abnormal elevations of B-cells and BAFF may lead to an overactive immune response, which can damage normal healthy tissues and organ systems. Multiple clinical studies with BAFF antagonists have reported the potential benefit of BAFF inhibitors in treating patients with lupus and IgAN." You can read the entire press release here.

SLE can be hard to diagnose. Current estimates suggest 300,000 and up to 1.5 million people in America suffer with SLE. Most of them are women.

The stock exploded higher on this positive clinical trial data. Shares have essentially doubled. Momentum suggest this rally will continue. Regular readers know that we consider biotech stocks higher-risk and more aggressive trades. The right or wrong headline can send a stock soaring or crashing. We could see shares gap up or down at any time. I definitely consider ANTH a higher-risk, aggressive trade.

Today the stock appears to be coiling for a bullish breakout past round-number resistance in the $5.00 area. I am suggesting small bullish positions if ANTH can trade at $5.05 or higher (although if shares gap open too high you may want to hesitate on launching positions).

*small positions* - Suggested Positions -

Long ANTH stock @ $5.05

- (or for more adventurous traders, try this option) -

Long Apr $5 CALL (ANTH150417C5) entry $1.10

02/26/15 triggered @ $5.05
Option Format: symbol-year-month-day-call-strike


Cree, Inc. - CREE - close: 39.50 change: +0.24

Stop Loss: 36.25
Target(s): To Be Determined
Current Option Gain/Loss: +8.1%
Entry on February 05 at $36.55
Listed on February 03, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.8 million
New Positions: see below

Comments:
03/02/15: CREE added +0.6% and looks closer to breaking out past key resistance in the $40.00 area. The stock has a significant amount of short interest (about 20% of the float). A breakout higher could spark a short squeeze.

Earlier Comments: February 3, 2015:
Shares of CREE might be seeing a turnaround. The company is part of the technology sector. According to a press release, "Cree is leading the LED lighting revolution and making energy-wasting traditional lighting technologies obsolete through the use of energy-efficient, mercury-free LED lighting. Cree is a market-leading innovator of lighting-class LEDs, lighting products and semiconductor products for power and radio frequency (RF) applications."

Last year was pretty rough on CREE investors. The trouble started back in 2013. Earnings have been sour. Management had developed a habit of missing earnings estimates and then guiding lower. However, after guiding lower the last two quarters in a row CREE finally offered the market some bullish guidance.

Their most recent earnings report was January 20th. Earnings came in at $0.33 a share. That's significant below the year ago period of $0.46 but their 33-cent profit beat Wall Street estimates by 11 cents. Revenues were essentially flat at $413 million.

CREE offered guidance (currently in their Q3) of $0.21-0.25 a share. That compares to analysts' estimates of $0.21. They're forecasting revenues in the $395-414 million range versus estimates of $405 million.

The last few months have been very volatile for CREE but the rally has created a buy signal on the point & figure chart that is forecasting a long-term $56 target. More importantly CREE appears to be breaking out past its long-term trend line of resistance (see weekly chart below). If this rally continues CREE could see a short squeeze. The most recent data listed short interest at 23% of the 109 million share float.

Tonight I am suggesting a trigger to open bullish positions at $36.55. We'll start this trade with a stop loss at $33.90.

- Suggested Positions -

Long CREE stock @ $36.55

- (or for more adventurous traders, try this option) -

Long MAR $35 CALL (CREE150320C35) entry $2.80

02/28/15 new stop @ 36.25
02/12/15 new stop @ 34.85
02/05/15 triggered @ 36.55
Option Format: symbol-year-month-day-call-strike


FireEye, Inc. - FEYE - close: 44.82 change: +0.55

Stop Loss: 42.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 26, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.8 million
New Positions: Yes, see below

Comments:
03/02/15: FEYE appears to be churning sideways in the $43-46 range. The stock could be volatile again tomorrow thanks to earnings from rival PANW. After the bell tonight PANW reported earnings above expectations. Guidance was mixed and PANW is all over the map in after hours trading. PANW's performance tomorrow could rub off on FEYE.

Earlier Comments: February 26,
The cyber attack on media giant Sony last year was headline news for weeks. It was a major warning bell for corporations around the world to spend more on cyber security. Today it still seems like every week we hear about some high-profile cyber attack. Online criminals and saboteurs are growing more sophisticated and that's fueling corporate demand for high-tech defenses.

The company describes itself as, "FireEye has invented a purpose-built, virtual machine-based security platform that provides real-time threat protection to enterprises and governments worldwide against the next generation of cyber attacks. These highly sophisticated cyber attacks easily circumvent traditional signature-based defenses, such as next-generation firewalls, IPS, anti-virus, and gateways. The FireEye Threat Prevention Platform provides real-time, dynamic threat protection without the use of signatures to protect an organization across the primary threat vectors and across the different stages of an attack life cycle. The core of the FireEye platform is a virtual execution engine, complemented by dynamic threat intelligence, to identify and block cyber attacks in real time. FireEye has over 3,100 customers across 67 countries, including over 200 of the Fortune 500."

The stock was a real high flyer in late 2013. Shares began to fade in early 2014 and then really got crushed when FEYE issued an earnings warning in May 2014. FEYE spent the rest of 2014 consolidating sideways in a very wide $25-40 trading range.

This year FEYE's stock has seen a reversal of fortunes. Suddenly shares are soaring and up more than +40% thanks to better than expected earnings results. FEYE's most recent earnings report was February 11th. Earnings improved from a loss of 50 cents a year ago to a loss of 38 cents in the fourth quarter, which was eleven cents better than expected. Revenues soared a whopping +149% to $143 million, which was above expectations.

Management guided 2015 earnings and revenues essentially in-line with consensus. The company is forecasting revenues in the $605-625 million range. FEYE expects a 2015 loss of $1.80 to $1.90 per share. Gross margins are expected to be in the 71-75 percent range.

Analysts have expressed concern with the surge in FEYE's spending but management said they are spending in-line with the company's growth. FEYE CEO Dave DeWalt said FEYE saw its growth double in 2014 and is up tenfold in the last three years.

Above average short interest in the stock helped fuel the rally from $36 to $46 in February. The most recent data listed short interest is still at 20% of the 126 million share float. Today shares of FEYE are hovering just below last week's high above $46.00. The intraday high today was $46.44. Tonight we're suggesting small bullish positions if FEYE can trade at $46.65 or higher.

I do consider this a more aggressive, higher-risk trade because shares of FEYE can be volatile. Normal April and May options are not available yet so we'll use June options (if you trade options).

Trigger @ $46.65 *small positions*

- Suggested Positions -

Buy FEYE stock @ (trigger)

- (or for more adventurous traders, try this option) -

Buy the Jun $50 CALL (FEYE150619C50)

Option Format: symbol-year-month-day-call-strike


Linear Technology Corp. - LLTC - close: 49.55 change: +1.37

Stop Loss: 44.90
Target(s): To Be Determined
Current Option Gain/Loss: +4.6%
Entry on February 11 at $47.35
Listed on February 10, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.7 million
New Positions: see below

Comments:
03/02/15: Semiconductor stocks had a strong day thanks to news that NXPI was buying FSL. This fueled an industry wide rally. LLTC gained +2.8% and broke through some short-term resistance.

Earlier Comments: February 10, 2015:
LLTC is part of the technology sector. The company makes an array of semiconductor products.

According to the company, "Linear Technology Corporation, a member of the S&P 500, has been designing, manufacturing and marketing a broad line of high performance analog integrated circuits for major companies worldwide for over three decades. The Company’s products provide an essential bridge between our analog world and the digital electronics in communications, networking, industrial, automotive, computer, medical, instrumentation, consumer, and military and aerospace systems. Linear Technology produces power management, data conversion, signal conditioning, RF and interface ICs, µModule® subsystems, and wireless sensor network products."

Back in October 2014 LLTC reported earnings that were in-line with estimates but management guided lower. They tried to soften this disappointing news by announced a 10 million share stock buyback program over the next two years (the company has about 239 million shares outstanding).

The earnings picture improved with their most recent report. LLTC reported Q4 earnings (its fiscal Q2) on January 13th. Earnings were up +16% from a year ago with a profit of $0.51 a share. That was two cents above estimates. Revenues were up +5.4% to $352.5 million, which was just a hair below expectations.

The company has retired its debt and management said they plan to increase the amount of cash they return to shareholders. With their earnings report they also announced the Board of Directors had bumped their quarterly dividend from $0.27 to $0.30. That's the 23rd year in a row LLTC has raised its dividend. Management also offered a bullish outlook on their current quarter. LLTC now expects revenues to improve +4% to +7% sequentially. That's about $366-377 million, which is above the $364 million analyst estimate.

Technically shares of LLTC have been consolidating sideways below resistance in the $47.00-47.25 zone for about eight weeks. If you look closely you can see an inverse head-and-shoulders pattern (a bullish formation). The stock was definitely showing some relative strength today with a +2.7% gain. Now LLTC is poised for a bullish breakout past resistance. We are suggesting a trigger to open bullish positions at $47.35.

- Suggested Positions -

Long LLTC stock @ $47.35

- (or for more adventurous traders, try this option) -

Long May $50 CALL (LLTC150515C50) entry $0.85

02/11/15 triggered @ $47.35
Option Format: symbol-year-month-day-call-strike


Luxoft Holding - LXFT - close: 51.47 change: +0.77

Stop Loss: 47.40
Target(s): To Be Determined
Current Option Gain/Loss: +2.4%
Entry on February 24 at $50.25
Listed on February 19, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 241 thousand
New Positions: see below

Comments:
03/02/15: There was no follow through on Friday's profit taking. LXFT bounced and managed to outperform the U.S. indices with a +1.5% gain. I am not suggesting new positions at current levels.

Earlier Comments: February 19, 2015:
LXFT is a technology company with a stock hitting all-time highs. You may not be familiar with LXFT since the company became public in mid 2013. "Luxoft Holding, Inc. is a leading provider of software development services and innovative IT solutions to a global client base consisting primarily of large multinational corporations." The company sells its services around the globe as it "develops its solutions and delivers its services from 18 dedicated delivery centers worldwide. It has over 8,600 employees across 22 offices in 14 countries in the North America, Mexico, Western and Eastern Europe, and Asia Pacific."

Last year shares of LXFT closed virtually unchanged for all of 2014. That surprises me. The company has raised its earnings guidance the last four quarterly reports in a row. They have beaten Wall Street's estimates on both the top and bottom line the last three quarters in a row.

On the daily chart you can see the big rally on February 12th. That was a reaction to LXFT's most recent earnings report. Management said earnings grew +50% to $0.81 a share last quarter. That was 21 cents above analysts' expectations. Revenues rose +31.8% to $145.75 million, also above estimates. LXFT raised their 2015 guidance from $2.00 a share to $2.15.

The stock is up significantly from its late January low near $37.00 so it wasn't a surprise to see shares correct after trading near $50 on February 13th (last Friday). What's interesting is how fast traders bought the dip. LXFT is now challenging round-number, psychological resistance at $50.00 again.

Tonight I am suggesting small bullish if LXFT can breakout higher. We'll start with an entry trigger at $50.25. We're not setting a target tonight but the point & figure chart is very bullish and forecasting a long-term target of $76.00.

Please note I am labeling this a slightly more aggressive trade and thus we want to keep our position size small to limit risk. Not only has LXFT been volatile the last couple of weeks but it might have exposure to geopolitical risk with Russia. LXFT is headquartered in Switzerland and does business around the globe. They are a subsidiary of IBS Group, which is a Russian company. LXFT also does business in Ukraine. Shares dropped sharply last March as the Ukraine situation heated up. Right now the most recent cease-fire attempt in Eastern Ukraine appears to have failed. That could prompt more sanctions from the West against Russia. We can't tell if new sanctions would hurt LXFT or not but it remains a potential risk.

*small positions to limit risk* - Suggested Positions -

Long LXFT stock @ $50.25

02/24/15 triggered @ $50.25


Microchip Technology - MCHP - close: 52.41 change: +1.14

Stop Loss: 49.25
Target(s): To Be Determined
Current Option Gain/Loss: +2.5%
Entry on February 24 at $51.15
Listed on February 21, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.8 million
New Positions: see below

Comments:
03/02/15: MCHP is another semiconductor stock showing relative strength. Today's +2.2% gain is also a bullish breakout past short-term resistance near $51.65.

Earlier Comments: February 21, 2015:
Semiconductor stocks have been big winners for investors over the last couple of years. Last year saw sales for the whole industry hit a record-breaking $335 billion. That's up almost +10% from 2013. While the SOX semiconductor index is currently trading at multi-year highs it did see a sharp sell-off in October 2014. That was thanks to MCHP.

MCHP is considered a bellwether for the industry. According to the company, "Microchip Technology Incorporated is a leading provider of microcontroller, mixed-signal, analog and Flash-IP solutions, providing low-risk product development, lower total system cost and faster time to market for thousands of diverse customer applications worldwide. Headquartered in Chandler, Arizona, Microchip offers outstanding technical support along with dependable delivery and quality."

Last October MCHP shocked the market when they lowered their earnings guidance and warned of an industry wide slowdown. This sparked an industry-wide sell-off. Shares of MCHP plunged. The stock spent the rest of the year trying to climb out of that hole. By the end of 2014 the stock had recovered enough to close essentially breakeven on the year.

Helping shares recover was an update in December. Management provided a slightly better earnings and revenue picture. MCHP said that business had improved significantly from early October. They now believed that the worst of the industry downturn was already behind them. This helped fuel gains for the semiconductor stocks while MCHP shares languished.

Fortunately today MCHP is playing catch up to its peers. The company reported its Q3 2015 results on January 29th. Wall Street was expecting a profit of $0.62 a share on revenues of $525.5 million. MCHP beat estimates with $0.64 a share as revenues grew +11.1% to $535.8 million.

MCHP said that calendar year 2014 was a strong one for their microcontroller business, which was up +13.8% overall. Their 8-bit, 16-bit, and 32-bit microcontroller segments all hit record sales with 16-bit sales up +27.7% and 32-bit sales up +41%. Management said overall they did witness broad-based growth across all their product lines. MCHP then raised their dividend and raised their guidance. They expected Q4 2015 earnings (current quarter) to be in the $0.65-0.67 range and revenues in the $541-551.9 million range. That's above analysts' estimates of $0.65 and $538.8 million.

Steve Sanghi, MCHP's President and CEO, commented on their quarterly results, "We are very pleased with our execution in the December quarter. Our original revenue guidance was to be down 4.5% sequentially and in early December we improved our guidance for revenue to be down only 3.5% at the midpoint. Our actual non-GAAP revenue results were down only 1.9%, which was better than what is seasonally normal. Calendar year 2014 was Microchip's first year above the $2 billion revenue mark and was up 12.8% from calendar year 2013 as a result of very strong performance from our microcontroller and analog product lines."

Investors cheered and the stock has soared from a low near $44 in early February to a new multi-year high above resistance at $50.00. The point & figure chart is forecasting a target at $56.00. Tonight we are suggesting a trigger to open bullish positions at $51.15.

- Suggested Positions -

Long MCHP stock @ $51.15

- (or for more adventurous traders, try this option) -

Long Apr $50 CALL (mchp150417C50) entry $2.40

02/24/15 triggered @ 51.15
Option Format: symbol-year-month-day-call-strike


Altria Group Inc. - MO - close: 56.50 change: +0.21

Stop Loss: 53.85
Target(s): To Be Determined
Current Option Gain/Loss: +2.3%
Entry on February 12 at $55.25
Listed on February 11, 2015
Time Frame: 10 to 16 weeks
Average Daily Volume = 7.8 million
New Positions: see below

Comments:
03/02/15: Another day, another new high for MO. I wouldn't chase the stock here. Wait for a pullback.

Earlier Comments: February 11, 2015:
The yield on the U.S. 10-year note is trading just below 2%. Two weeks ago the 30-year U.S. note had dropped to multi-decade lows. Yields on sovereign debt from healthy European countries like Germany are trading near all-time lows near zero. Last week saw yields on huge European corporate debt, like Nestle, actually go negative.

Super low or negative yields paints a picture that investors are nervous. Smart money is looking for safety. They would rather park their money in bonds with little to zero yield (or even negative yield in some cases) just to know their money is safe. This is one reason why shares of MO look so attractive. Even at all-time highs, like it is now, MO has a 3.9% dividend yield.

The traditional cigarette industry is slowly dying. That's a good thing since the practice is so poisonous. The cigarette industry saw the volume of cigarettes decline -2.5% in the Q4 2014 and down -3.5% in all of 2014. The drop in volume for MO was not quite that bad. Yet even though the number of cigarettes being sold is falling the company continues to make money and a lot of money at that!

One secret to MO's profitability has been price increases and stealing market share from its rivals. A strong stock buyback program also helped its earnings numbers. Last quarter the company spent $260 million buying about 5.3 million shares of its stock. This helped boost its earnings per share growth to +15.8% in the fourth quarter. Results were $0.66 a share, in-line with estimates. Revenues grew +4.7% to $4.61 billion, which beat analysts' expectations.

Almost 90% of MO's business is still in the smokeable category (i.e. traditional cigarettes). They managed +3.3% revenue growth even though their volumes were down -1.7%. They're also seeing growth in their smokeless products, namely the e-cigarette business. Management offered bullish guidance of +7% to +9% growth in their earnings per share for 2015.

MO is likely to stay a popular investment among yield-conscious traders, especially since their business is so addictive, I mean predictable. The stock has been consolidating sideways in the $53.00-55.00 zone the last couple of weeks. Today shares displayed relative strength with a surge toward the top of this range. We want to be ready if MO breaks out. Tonight I am suggesting a trigger to open bullish positions at $55.25. Keep in mind that MO is something of a slow-moving stock. We will need to be patient for this trade to pay off.

- Suggested Positions -

Long MO stock @ $55.25

- (or for more adventurous traders, try this option) -

Long JUN $55 CALL (MO150619C55) entry $2.00

02/14/15 new stop @ 53.85
02/12/15 triggered @ 55.25
Option Format: symbol-year-month-day-call-strike


Neurocrine Biosciences - NBIX - close: 40.43 change: +1.38

Stop Loss: 35.75
Target(s): To Be Determined
Current Option Gain/Loss: +7.4%
Entry on February 17 at $37.65
Listed on February 14, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 937 thousand
New Positions: see below

Comments:
03/02/15: NBIX flexed its relative strength muscle and rallied +3.5%. This is a new closing high for the stock. Tonight we'll adjust the stop loss up to $35.75. More conservative traders may want to use a stop closer to $38 instead. I am not suggesting new positions at this time.

Earlier Comments: February 14, 2015:
Biotech stocks were big performers last year outpacing the broader market. It looks like that outperformance will continue in 2015 with the major biotech indices and ETFs already up +5% to +7% this year. One biotech that's really outperforming its peers in NBIX, with shares already up more than +60% in 2015.

According to the company's marketing materials, "Neurocrine Biosciences, Inc. discovers and develops innovative and life-changing pharmaceuticals, in diseases with high unmet medical needs, through its novel R&D platform, focused on neurological and endocrine based diseases and disorders. The Company's two lead late-stage clinical programs are elagolix, a gonadotropin-releasing hormone antagonist for women's health that is partnered with AbbVie Inc., and a wholly owned vesicular monoamine transporter 2 inhibitor for the treatment of movement disorders. Neurocrine intends to maintain certain commercial rights to its VMAT2 inhibitor for evolution into a fully-integrated pharmaceutical company."

NBIX has two therapies planned for phase III trials in 2015. You can see NBIX's pipeline on this web page.

The drug making headlines for NBIX this year is Elagolix, a treatment for endometriosis. Shares of NBIX soared on January 8th after the company and its partner on this treatment, AbbVie, announced positive results for their latest Phase 3 trials. Endometriosis could affect up to 10% of all women in their reproductive years. That's a pretty big market. You can see why Wall Street is so excited about this news and sent shares of NBIX soaring.

Make no mistake, this is an aggressive, higher-risk trade. Biotech stocks can be volatile. The right or wrong headline can send the stock soaring or crashing. NBIX is already very, very overbought with a run from $20 to $37 since its early January lows. Yet that doesn't mean it won't keep running. Sometimes biotech stocks have a mind of their own. There is not any clear resistance. You have to go back more than ten years and you might find resistance in the $42.50-45.00 area. Should this rally continue NBIX could see more short covering. The most recent data listed short interest at 12% of the small 66 million share float.

I'm going to repeat myself. This is an aggressive play. NBIX does have options but the spreads are too wide to trade. The intraday bounce on Friday looks like a test of short-term support near $35.00. You can see on the intraday chart that NBIX has a very short-term pattern of lower highs. Therefore, we are suggesting a trigger to open small bullish positions at $37.65. If triggered we'll start with a stop loss at $34.90.

*small positions to limit risk* - Suggested Positions -

Long NBIX stock @ $37.65

03/02/15 new stop @ 35.75
02/17/15 after the close, announces a secondary offering
02/17/15 triggered @ 37.65
Option Format: symbol-year-month-day-call-strike


Total System Services - TSS - close: 38.73 change: +0.53

Stop Loss: 36.85
Target(s): To Be Determined
Current Option Gain/Loss: +4.5%
Entry on February 13 at $37.05
Listed on February 05, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 883 thousand
New Positions: see below

Comments:
03/02/15: TSS closed at new highs. Shares displayed strength with a +1.38% gain versus the S&P 500's +0.6% gain. Tonight we'll move the stop loss up to $36.85. I am not suggesting new positions at this time.

Earlier Comments: February 5, 2015:
Financial stocks as a group have struggled this year. The sector is down about -4% in 2015. Yet shares of TSS is up +6.4% and trading near all-time highs.

According to a company press release, "At TSYS® (TSS), we believe payments should revolve around people, not the other way around. We call this belief "People-Centered Payments®." By putting people at the center of every decision we make, TSYS supports financial institutions, businesses and governments in more than 80 countries. Through NetSpend®, A TSYS Company, we empower consumers with the convenience, security, and freedom to be self-banked. TSYS offers issuer services and merchant payment acceptance for credit, debit, prepaid, healthcare and business solutions. TSYS' headquarters are located in Columbus, Ga., U.S.A., with local offices spread across the Americas, EMEA and Asia-Pacific."

The last few earnings reports from TSS have come in better than expected. Their most recent earnings report was January 27th. TSS' CEO said, "We finished 2014 on a high note. Organic revenue grew 5.8%, year over year, with total revenues growing 18.5% and revenues before reimbursable items up 20.2%."

Wall Street was looking for a Q4 profit of $0.53 a share on revenues of $620.4 million. TSS delivered a profit of $0.58 with revenues climbing almost 9% to $635 million. The company's guidance was only in-line with Wall Street estimates but that didn't stop shares from soaring on the news. TSS management also announced a new 20 million share stock buyback program. That's significant since the company only has 183 million shares outstanding.

The stock's up trend has created a buy signal on the point & figure chart pointing to at $40.00 target. The last few days have seen traders buying the dip. TSS looks like it's coiling for a breakout past the $37.00 level.

Given the stock's recent volatility I am labeling this a more aggressive, higher-risk trade. Tonight we are suggesting a trigger at $37.05 to buy the stock.

- Suggested Positions -

Long shares of TSS @ 37.05

03/02/15 new stop @ 36.85
02/28/15 new stop @ 36.40
02/21/15 Caution: TSS is starting to look short-term overbought.
02/13/15 triggered @ 37.05




BEARISH Play Updates

Five Below, Inc. - FIVE - close: 31.75 change: +0.02

Stop Loss: 33.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on February 28, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.2 million
New Positions: Yes, see below

Comments:
03/02/15: FIVE did not participate in the market's broad-based rally today. That's good news if you're bearish on the stock. Shares did hit new lows but the intraday low was only $31.46. Our suggested entry point to launch bearish positions is $31.45.

Earlier Comments: February 28, 2015:
Five Below is struggling. Consumer spending accounts for almost 70% of the U.S. economy. FIVE has chosen to carve out a niche between the $1.00 store-model and discount variety stores. Considering the drop in gasoline prices from a year ago, business should be good. Low-income consumers have more money to spend. Unfortunately we are not seeing a lot of evidence that consumers are spending the money they save at the gas pump, at least they're not spending it on merchandise.

If you're not familiar with FIVE the company describes itself as "Five Below is a rapidly growing specialty value retailer offering a broad range of trend-right, high-quality merchandise targeted at the teen and pre-teen customer. Five Below offers a dynamic, edited assortment of exciting products in a fun and differentiated store environment, all priced at $5 and below, including select brands and licensed merchandise across a number of category worlds: Style, Room, Sports, Tech, Crafts, Party, Candy, and Now." They currently have about 304 locations in 19 states.

Right now the trend is not FIVE's friend. In September 2014 they reported Q2 results and guided lower for the third quarter. On December 4th FIVE reported their 2014 Q3 numbers with earnings in-line with estimates. Revenues were up +24.7% from a year ago to $138 million, just a hair above expectations. However, management lowered their guidance again. You can see how investors reacted with the big drop on December 5th.

Shares got clobbered again on January 9th. That's because FIVE lowered guidance! That's the third time since September they have lowered guidance. If FIVE is struggling to generate sales now with low gas prices and consumer confidence near 11-year highs what are they going to do when gas prices rebound?

You can see that shares of FIVE did not have much of a bounce following the January sell-off. The stock now has a bearish trend of lower highs as traders sell the rallies. Currently FIVE is breaking down below support near $32.00. The next support level could be $30.00 or it could be the late 2012 lows near $28.00 or it could be the all-time low near $25.00. The point & figure chart is bearish and forecasting at $26.00 target.

The stock is definitely underperforming the market and investor sentiment has soured. The stock is likely headed for the mid $20s. I will caution readers that short interest is almost 19% of the 51.9 million share float. That could generate volatility. You may want to use small positions to limit your risk or use put options to limit your risk. Tonight we are suggesting a trigger to launch bearish positions at $31.45.

Trigger @ $31.45

- Suggested Positions -

Short FIVE stock @ (trigger)

- (or for more adventurous traders, try this option) -

Buy the Apr $30 PUT (FIVE150417P30)

Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

The ADT Corp. - ADT - close: 39.08 change: -0.14

Stop Loss: 37.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 23, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.5 million
New Positions: see below

Comments:
03/02/15: ADT continues to retreat from resistance at $40.00. Our trade has not opened yet. We're choosing to remove ADT as a candidate.

Trade did not open.

03/02/15 removed from the newsletter, suggested entry was $40.10

chart: